The Case For Buying Gold  

The Case For Buying Gold

The media, and even the network news shows, have begun reporting the price of gold regularly. For almost twenty years, between 1980 and 2000, the gold price was rarely mentioned. There was no interest, and the price was either declining or stagnant.

Since 2001 however, demand in gold has spiked and so has its price. With the price now over $1000 an ounce, many more people are becoming interested in investing in gold and an economic indicator. A lot can be learned by understanding what the rising dollar price of gold foretells.

The rise in gold prices from $256 per ounce in 2001 to over $1000 today has drawn investors and speculators into the precious metals market. Though many already have made tremendous gains, buying gold per se should not be touted as a great investment. Considering that gold earns no interest and its quality never changes. It’s static, and does not grow as proper investments should.

It’s more accurate to say that one might invest in a gold or silver mining company, where management, labor costs, and the nature of new discoveries all play a crucial role in determining the quality of the investment and the profits made.

Buying gold and holding it is somewhat similar to converting one’s savings into one hundred dollar bills and hiding them under the bed, althoughtyet not exactly the same. Both gold and dollars are considered money, and holding money does not count as an investment. There’s a major difference between the two however, because by holding paper money one loses purchasing power. The purchasing power of commodity money, i.e. gold, however, goes up if the government devalues the circulating fiat money.

Holding gold is protection or insurance against government’s ideal to debase its currency. The buying power of gold increases not because it’s a so-called good investment; it increases in value only because the paper currency goes down in value. In our current situation, that means the U.S. dollar is weakening against gold.

One of the characteristics of commodity money (one that originated naturally in the marketplace) is that it serves as a store of value. Gold and silver meet that test, while, but paper money does not. Because of this inherent difference, the incentive and wisdom of holding emergency funds in the form of gold becomes a no-brainer when the fiat money is being devalued. It’s smarter than trying to save wealth in the form of a fiat currency, even when getting some small amount of interest, especially when this interest often attracts the highest taxation rate. The lack of earned interest on gold is not an issue when people realize the purchasing power of their currency is declining quicker than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living.

It's probably an appropriate idea for you to diversify some of your savings into gold coins or maybe gold-backed securities like the Gold ETF. Some financial planners advise that everyone hold 5-15% of their investments in gold, although with the current economic situation, I'd certainly go for the high end of that range.

I especially like collectible and rare coins instead of regular bullion coins. Historically, the US government has confiscated bullion coins. They do not however confiscate historic or collectible coins. For this reason I prefer old, rare gold coins, which don't really have a high premium right now. My favorites are the Swiss Helvetias Gold Coins

The writer hosts a site dedicated to Living Off Investments and is an avid Collector of Rare Gold Coins.

Coin Collection
Gold Coin Collecting
Rare Gold Coin
American Gold Eagles